The Wage Code Bill is a mixed bag

KR Shyam Sundar | Updated on: Jul 28, 2019

A ‘national minimum wage’ is a good idea, but its computation is cause for concern. Labour inspectors may become ineffective

The Wage Code Bill combining four labour laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976 — has been introduced in the ongoing session of Parliament.

Though the draft Code is welcome on several grounds — such as with respect to universal minimum wage for the employed and a transparent wage payment system — there are some issues of concern.

The basic issue with respect to minimum wage is the methodology used. A set of criteria was arrived at during the tripartite proceedings of the Indian Labour Conference — supplemented by the Supreme Court’s prescription in Workmen v Reptakos Brett & Co. in 1992 — which basically combines minimum expenses on food and non-food (clothing, fuel and light, house rent, education, medical expenses, footwear, transport, etc.) items.

Various bodies arrive at differing estimates and therein lies the problem. For example, recently the Seventh Pay Commission arrived at a rather generous minimum wage (₹18,000 for government employees) and the Expert Committee on Minimum Wages, a rather conservative estimate (₹9,750); the latter is likely to be contested by trade unions. However, these estimates provide the ‘bargaining zone’ for labour, industry and the government. The best part of the Expert Committee’s (EC’s) recommendation is a single national minimum wage, without several categories based on skill or other criterion.

The Code (as well as EC and the Economic Survey, 2019) stipulates a national statutory (replacing the existing non-statutory) minimum wage; there could be regional (zonal) and State level minimum wages. The three-tier minimum wage can be problematic. Since the governments/bodies at the national level will fix a conservative minimum wage on the statutory premise that the lower levels should exceed it, and the same logic will repeat at the zonal level.

These conservative wages will penalise high productivity workers in rich States as the State governments are less likely to be generous. They will encourage the low-productivity poor States to stick around these rates given the fiercely competitive wage arbitrage that prevails to attract investment. Then, the minimum wages in a sense become the ‘equilibrium wage rate’.

Further, the zonal approach as an intermediate level is superfluous and is more likely to add to the complexities. The criteria adopted by the EC to classify the States into zones — based on levels of economic development, cost of living, labour market situation, and women’s empowerment — could be modified to include human development indices, as minimum wages seek to prevent exploitation and contribute to human development. Institutional indices such as union presence or collective bargaining can also be included.

At any rate, it is better to have a simple two-tiered system — minimum wage at the national and State levels.. The Code stipulates revision of minimum wages “at an interval of five years”.

Typically wage bargaining in the organised private sector takes place every 2-3 years and in some cases four years (called long-term agreements). And the cost of living adjustments take place depending on the movements in the price indices.Research by Prof. Lalit Deshpande and his colleagues shows that minimum wages often serve as the basis for wage bargaining and it makes sense to make minimum wage revisions along with the median bargaining cycles.

The universalisation of minimum wage is a giant leap in policy, but do the governments have the wherewithal to enforce it?

The Sixth Economic Census enumerated 3.1 million establishments in the manufacturing sector alone, which employ at least one hired worker, and 15.23 million in the broad non-agricultural sector. Inclusion of agriculture will take the total to a a massive figure.

The systematic dilution and weakening of the labour law enforcement machinery and the aggressive de-unionisation that have been taking place mean poor monitoring. The proxy economic exercise on gauging the gap between actual average wage of casual workers and the national floor level minimum wages (NFLMW) hides more than it reveals as sectoral/regional gaps could be huge.

Recently, Subhash Bhatnagar, the co-ordinator of the National Campaign Committee for Construction Workers, claimed that 97 per cent of the surveyed construction workers in Delhi were not aware of minimum wages. But the Economic Survey reveals that the compliance gap was much lower for regular than for casual workers. So it’s a mixed bag. What is more worrisome is the removal of essential powers of labour inspectors as enshrined in the ILO Convention.

Also, the Equal Remuneration Act, 1976 prohibited gender-based discrimination in terms of wages, recruitment and conditions of service. The Code has omitted the latter two, though the Standing Committee on Labour has recommended their inclusion. The Wage Code leaves much to be desired.

The writer is Professor, XLRI

Published on July 28, 2019

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